Brief Exercise 7-2
Restin Co. uses the gross method to record sales made on credit. On June 1, 2014, it made sales of $57,600 with terms 3/15, n/45. On June 12, 2014, Restin received full payment for the June 1 sale.
Prepare the required journal entries for Restin Co.
Brief Exercise 7-4
Wilton, Inc. had net sales in 2014 of $1,469,500. At December 31, 2014, before adjusting entries, the balances in selected accounts were: Accounts Receivable $286,400 debit, and Allowance for Doubtful Accounts $2,890 credit. If Wilton estimates that 4% of its net sales will prove to be uncollectible.
Prepare the December 31, 2014, journal entry to record bad debt expense.
Brief Exercise 7-11
Arness Woodcrafters sells $248,100 of receivables to Commercial Factors, Inc. on a with recourse basis. Commercial assesses a finance charge of 7% and retains an amount equal to 6% of accounts receivable. Arness estimates the fair value of the recourse liability to be $9,120.
Prepare the journal entry for Arness to record the sale.
Exercise 7-4
Your accounts receivable clerk, Mitra Adams, to whom you pay a salary of $3,465 per month, has just purchased a new Acura. You decided to test the accuracy of the accounts receivable balance of $270,270 as shown in the ledger.
The following information is available for your first year in business.
(1) Collections from customers $457,380
(2) Merchandise purchased 739,200
(3) Ending merchandise inventory 161,700
(4) Goods are marked to sell at 40% above cost
Compute an estimate of the ending balance of accounts receivable from customers that should appear in the ledger and any apparent shortages. Assume that all sales are made on account.
Exercise 7-5 (Part Level Submission)
On June 3, Arnold Company sold to Chester Company merchandise having a sale price of $4,200 with terms of 3/10, n/60, f.o.b. shipping point. An invoice totaling $96, terms n/30, was received by Chester on June 8 from John Booth Transport Service for the freight cost. On June 12, the company received a check for the balance due from Chester Company.
(a) Prepare journal entries on the Arnold Company books to record all the events noted above under each of the following bases.
(1) Sales and receivables are entered at gross selling price.
(2) Sales and receivables are entered at net of cash discounts.
(b) Prepare the journal entry under basis 2, assuming that Chester Company did not remit payment until July 29.
Exercise 7-9
The trial balance before adjustment of Reba McIntyre Inc. shows the following balances.
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Dr.
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Cr.
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Accounts Receivable
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$94,100
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Allowance for Doubtful Accounts
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2,900
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Sales Revenue (all on credit)
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$599,000
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Give the entry for estimated bad debts assuming that the allowance is to provide for doubtful accounts on the basis of (a) 4% of gross accounts receivable and (b) 2% of net sales.
Exercise 7-10
The chief accountant for Dickinson Corporation provides you with the following list of accounts receivable written off in the current year.
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Date
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Customer
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Amount
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March 31
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E. L. Masters Company
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$7,990
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June 30
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Stephen Crane Associates
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8,970
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September 30
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Amy Lowell's Dress Shop
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7,020
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December 31
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R. Frost, Inc.
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9,360
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Dickinson Corporation follows the policy of debiting Bad Debt Expense as accounts are written off. The chief accountant maintains that this procedure is appropriate for financial statement purposes because the Internal Revenue Service will not accept other methods for recognizing bad debts.
(a) All of Dickinson Corporation's sales are on a 30-day credit basis. Sales for the current year total $2,294,500, and research has determined that bad debt losses approximate 3% of sales.
(b) By what amount would net income differ if bad debt expense was computed using the percentage-of-sales approach?
Exercise 7-18
On July 1, 2014, Agincourt Inc. made two sales.
1. It sold land having a fair value of $905,000 in exchange for a 3-year zero-interest-bearing promissory note in the face amount of $1,204,563. The land is carried on Agincourt's books at a cost of $594,000.
2. It rendered services in exchange for a 4%, 6-year promissory note having a face value of $408,800 (interest payable annually).
Agincourt Inc. recently had to pay 9% interest for money that it borrowed from British National Bank. The customers in these two transactions have credit ratings that require them to borrow money at 10% interest.
Record the two journal entries that should be recorded by Agincourt Inc. for the sales transactions above that took place on July 1, 2014.
IFRS Practice Question 1
Under IFRS, cash and cash equivalents are reported:
the same as GAAP.
as separate items.
similar to GAAP, except for the reporting of bank overdrafts.
always as the first items in the current assets section.
IFRS Practice Question 2
Under IFRS, receivables are to be reported on the balance sheet at:
amortized cost.
amortized cost adjusted for estimated loss provisions.
historical cost.
replacement cost.
IFRS Practice Question 3
Which of the following statements is false?
Receivables include equity securities purchased by the company.
Receivables include credit card receivables.
Receivables include amounts owed by employees as result of company loans to employees.
Receivables include amounts resulting from transactions with customers.
IFRS Practice Question 4
Under IFRS:
the entry to record estimated uncollected accounts is the same as GAAP.
loans and receivables should only be tested for impairment as a group.
it is always acceptable to use the direct write-off method.
all financial instruments are recorded at fair value.
IFRS Practice Question 5
Which of the following statements is true?
The fair value option requires that some types of financial instruments be recorded at fair value.
The fair value option requires that all noncurrent financial instruments be recorded at amortized cost.
The fair value option allows, but does not require, that some types of financial instruments be recorded at fair value.
The FASB and IASB would like to reduce the reliance on fair value accounting for financial instruments in the future.